“This was an outstanding year that capped five really strong years,” Michael Trotsky, chief of the Pension Reserves Investment Management board, said at a meeting of the fund’s investment committee Tuesday.

The Massachusetts fund’s performance compared with a 16.2 percent return last year for the nation’s largest public pension fund, the California Public Employees’ Retirement System.

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The strong returns also lifted the state pension fund to a record level, at nearly $58 billion, just five years after the 2008 financial crisis rocked global markets and wiped out billions in savings. But Trotsky, a former hedge fund manager who took over the pension job in 2010, is mindful that after a five-year rebound, he and his staff have to prepare for a possible downturn.

His greatest goal, in addition to achieving the best possible returns for pensioners and taxpayers: to do “a lot better” the next time markets plunge. In the financial crisis of 2008, the state fund lost more than one-quarter of its assets.

Trotsky has focused on lowering the risk in the portfolio. And on Tuesday, he proposed taking some money out of stocks this year, and making a creative move with bonds.

Under the proposal, the fund would trim the amount it invests in US and foreign stocks to 40 percent, from 43 percent. It would also take 1 percent out of hedge funds and put the combined 4 percent of money freed up into a new area for the fund — home-grown strategies that mimic hedge fund returns but at a lower cost.

In addition, the pension fund plans to move its “core bond” allocation, now at 10 percent, or nearly $6 billion, from a sector that includes corporate bonds and mortgages to long-term US government debt — 20- and 30-year Treasury bonds.

That move is the result of a working group convened to find a smarter way to use bond investments to protect the fund in down markets for stocks.

The group concluded that, following last year’s run-up in interest rates, the worst may be over, and that longer-term bonds will fare better than short-term bonds in the coming year.

There was animated board discussion over this idea, including whether it was too soon to shift some $2 billion into the new bond strategy — one-third of the total. Diane Nordin, a former executive of Wellington Management Co. who led the working group, defended the approach while acknowledging that the outlook for bonds is uncertain.

“These are untested waters,’’ she said.

The pension fund beat its internal benchmarks last year in most categories, although it lagged in public real estate trusts, distressed debt, and timber holdings. The fund continued to enjoy improved results in hedge funds, with a 12.6 percent return last year versus an 8.8 percent average return for fund-of-funds.

Pension board chief

The pension fund has shifted away from fund-of-funds, which use middlemen and charge extra fees, and is instead investing directly in a smaller group of higher-performing hedge funds. Overall, the fund expects to save $100 million in fees annually in 2015, and already has saved tens of millions.

State Treasurer Steve Grossman, who is chairman of the state pension board, said the fund’s strong results last year will help lower its $28.3 billion unfunded liability. The fund paid out $1.6 billion in retirement benefits in 2013.

The fund’s five-year return is 11.9 percent, well over its 8 percent target. But the 10-year return, which includes that disastrous 2008, is lower, at 7.7 percent. A number of advisers at Tuesday’s meeting warned that returns in the next five years could be significantly lower than in the last five.

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